Hon Hai to split into small firms to be competitive

Hon Hai Precision Industry Co. is planning to split itself into various smaller companies to compete more effectively in the market, said Terry Gou, chairman of the firm, yesterday.

Gou laid out his vision for the company's future at the firm's shareholders' meeting yesterday.

Hon Hai will first create separate companies out of its touch screen and digital camera module businesses. Similar actions will be taken on other business units in the future, Gou said.

"In the future, Hon Hai will have the scale of a large firm and the flexibility of smaller firms," he said.

"Hon Hai the parent company will be like a carrier, supported by smaller battleships," he said. "Together as a whole fleet, we'll fight more effectively."

Also at the meeting yesterday, Gou agreed to raise stock dividends the company will issue this year to NT$1 per share, up from NT$0.5. This, with cash dividends of NT$1 per share, translates into total dividends of NT$2 per share.

A contract manufacturer for such popular devices as the iPad and iPhone, Hon Hai had a combined gross profit margin of 8.15 percent last year, a decline of 1.37 percent from 9.52 percent in 2009. Net profit last year was NT$77.153 billion, on total sales of NT$2.99 trillion.

However, the company's board surprised the market earlier this year with a decision to distribute only NT$1.5 in dividends, a move that upset shareholders given that the firm's earnings per share were NT$8.01.

At the meeting yesterday, shareholders wasted no time criticizing the firm's decision and asked Gou to raise the dividends.

To this, Gou said the company needs cash at hand to pay in the midst of China's move to raise interest rates.

However, Gou said he understood how shareholders felt and eventually agreed to raise stock dividends to NT$1 a share.

Also yesterday, Gou gave himself a score of "60" for his performance last year, equivalent to a "D" in the Western scoring system.

The firm suffered an explosion at its Sichuan factory earlier this year. Last year, 14 of Hon Hai's Chinese employees died in 18 separate suicide attempts where they jumped off their dormitory buildings. Consequentially, there was a 1.37 percent decline in the firm's gross profit margin.

Gou said the decline reflected Hon Hai's stronger focus on R&D and capacity expansion. "A smaller gross profit margin should be seen as an investment," he said.

"This year is the year in which Hon Hai strengthens its foundations," he said. "Next year will be a year of harvest for Hon Hai."